This post offers highlights of the annual Altman Weil CLO Survey. In my view, the Chief Legal Officer (CLO) Survey is one of the better legal market surveys. It has been conducted since 2010, has a good sample size, and asks many of the same questions year to year. Asking the same question each year provides somewhat comparable longitudinal data (not entirely comparable because the respondent set likely changes).

In this summary, I focus on CLO Survey highlights I find particularly interesting. These include the role alternative legal service providers (ALSP, also referred to as law companies here), legal operations professionals, and opportunities for clients to up their game.

Law Departments Continue to Bring Work In-House and the Share of Alternative Legal Service Providers (Law Companies) Remains Flat. A few months ago I wrote Why Alternative Legal Provider Market Share May be Limited. It offered several potential limitations on ALSP share. One reason I cited is the CLO Survey longitudinal data on relative market shares. This is the money chart, updated:

Law Department Spend by Category – Altman Weil 2018 CLO Survey

The chart shows that client spending on law companies (ALSP) has remained largely flat for years. Given many articles arguing law companies will disrupt law firms, I examined the CLO Survey for other questions and responses that might explain the flat share:

More In-House Lawyers. The chart shows a steady decline in law firm share of spending since 2015.

Other responses find that 42% of law departments plan to increase their lawyer headcount and only 7.5% plan a decrease. “This degree of growth is part of a long-term trend the survey has tracked since 2010.”

CLOs also expect to add contract lawyers, with almost 4x as many planning to add as decrease (15.3% plan increases; 4.3% deceases).

In-house lawyers, whether full-time or contract, are substitutes for both law firms and law companies.

More Professionals In-House. One attraction of law companies is the lower cost labor they offer, both onshore and off. But CLOs have other ways to reduce labor cost. The CLO Survey suggests clients will take advantage of internal labor cost arbitrage.

Almost 10x as many CLOs (31.7% versus 3.7%) expect to increase versus decrease the number of in-house paralegals.

And more than 2x (17.9% versus 7.6%) expect to add support staff.

We may never know how much “legal work” paralegals and support staff do. Ethics rules place no limit, however, on delegation as long as a a licensed lawyer adequately supervises the delegated work.

Not the Best Way to Improve Efficiency. Altman Weil asks “In the last 12 months have you done any of the following to increase your law department’s efficiency in its delivery of legal services”? It offers multiple options (and multi-select) that include use more tech, process improvement, knowledge management, and outsource to law companies.

Excluding the answer “none”, outsourcing to non-law-firm vendors comes in last at 16.3%.

By contrast, 67% found efficiency with greater use of tech, and 44% with more use of paralegals.

When asked, however, which of these initiatives resulted in significant improvement in efficiency. law companies fall in the middle at 58%. To frame that, 73% cited using a legal ops professional on the high side and 37% KM on the low side.

Not the Most Popular Way to Reduce Cost. Of the 29% of CLOs that plan to decrease outside counsel spend in 2019, the survey asks how they plan to cover the work.

Coming in first at 70% is in-house lawyer staff.

In the middle, at 46% is shifting work to lower cost firms.

And at the bottom, at 15%, is using non-law firm vendors.

The Continued Rise of Legal Operations Professionals. From 2016 to 2018, there has been a six percentage point increase in the number of law departments with at least one legal ops professional. As of 2018, 39% of law departments have one person and over 75% of law departments of 50 or more lawyers have one. This is consistent with the rapid growth in CLOC (Corporate Legal Operations Consortium).

Opportunities for Clients To Do Better – LPM Bark Worse Than Bite. Among CLOs, 48% require budgets generally and 83% on major matters. Yet only 38% enforce these budgets. Hmm… that seems like an obvious place for CLOs to focus. Budgets and legal project management (LPM) work best with enforcement. Separately, only 33% provide post-matter feedback though of those that do, 71% say it improves law firm performance. Another seemingly easy avenue to improve.

I have read the Altman Weil CLO Survey for several years running. It’s always enlightening and I encourage you to read the entire report. In my view, it documents nicely the relatively gradual change of pace in the corporate law market of law departments and large law firms.